June 13, 1991

REPUBLIC ACT NO. 7042

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES

FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, AND FOR
OTHER PURPOSES

SECTION 1. Title. — This Act shall be known as the "Foreign Investments Act of
1991".
SECTION 2. Declaration of Policy. — It is the policy of the State to attract,
promote and welcome productive investments from foreign individuals, partnerships,
corporations, and governments, including their political subdivisions, in activities which
signi cantly contribute to national industrialization and socioeconomic development to
the extent that foreign investment is allowed in such activity by the Constitution and
relevant laws. Foreign investments shall be encouraged in enterprises that signi cantly
expand livelihood and employment opportunities for Filipinos; enhance economic value
of farm products; promote the welfare of Filipino consumers; expand the scope, quality
and volume of exports and their access to foreign markets; and/or transfer relevant
technologies in agriculture, industry and support services. Foreign investments shall be
welcome as a supplement to Filipino capital and technology in those enterprises
serving mainly the domestic market. cd

As a general rule, there are no restrictions on extent of foreign ownership of

export enterprises. In domestic market enterprises, foreigners can invest as much as
one hundred percent (100%) equity except in areas included in the negative list. Foreign
owned rms catering mainly to the domestic market shall be encouraged to undertake
measures that will gradually increase Filipino participation in their businesses by taking
in Filipino partners, electing Filipinos to the board of directors, implementing transfer of
technology to Filipinos, generating more employment for the economy and enhancing
skills of Filipino workers.
SECTION 3. Definitions. — As used in this Act:
a) The term "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee
retirement or separation bene ts, where the trustee is a Philippine
national and at least sixty (60%) of the fund will accrue to the bene t
of the Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines, in
order that the corporations shall be considered a Philippine national;acd

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 b) The term "investment" shall mean equity participation in any enterprise
organized or existing under the laws of the Philippines;
c) The term "foreign investment" shall mean as equity investment made by a
non-Philippine national in the form of foreign exchange and/or other
assets actually transferred to the Philippines and duly registered with
the Central Bank which shall assess and appraise the value of such
assets other than foreign exchange;
d) The phrase "doing business" shall include soliciting orders, service
contracts, opening o ces, whether called "liaison" o ces or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period
or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, rm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business: shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
o cer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;
e) The term "export enterprise" shall mean an enterprise wherein a
manufacture, processor or service (including tourism) enterprise
exports sixty per cent (60%) or more of its output, or wherein a trader
purchases products domestically and exports sixty per cent (60%) or
more of such purchases;
f) The term "domestic market enterprise" shall mean an enterprise which
produces goods for sale, or renders services to the domestic market
entirely or if exporting a portion of its output fails to consistently
export at least sixty percent (60%) thereof; and
g) The term "Foreign Investments Negative List" or "Negative List" shall
mean a list of areas of economic activity whose foreign ownership is
limited to a maximum of forty percent (40%) of the equity capital of
the enterprises engaged therein.
SECTION 4. Scope. — This Act shall not apply to banking and other nancial
institutions which are governed and regulated by the General Banking Act and other
laws under the supervision of the Central Bank.
SECTION 5. Registration of Investments of Non-Philippine Nationals. — Without
need of prior approval, a non-Philippine national, as that term is de ned in Section 3 (a),
and not otherwise disquali ed by law may, upon registration with the Securities and
Exchange Commission (SEC), or with the Bureau of Trade Regulation and Consumer
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 Protection (BTRCP) of the Department of Trade and Industry in the case of single
proprietorships, do business as de ned in Section 3 (d) of this Act or invest in a
domestic enterprise up to one hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise is prohibited or limited to a
smaller percentage by existing law and/or under the provisions of this Act. The SEC or
BTRCP, as the case may be, shall not impose any limitations on the extent of foreign
ownership in an enterprise additional to those provided in this Act: Provided, however,
That any enterprise seeking to avail of incentives under the Omnibus Investment Code
of 1987 must apply for registration with the Board of Investments (BOI), which shall
process such application for registration in accordance with the criteria for evaluation
prescribed in said Code: Provided, nally , That a non-Philippine national intending to
engage in the same line of business as an existing joint venture, in which he or his
majority shareholder is a substantial partner, must disclose the fact and the names and
addresses of the partners in the existing joint venture in his application for registration
with SEC. During the transitory period as provided in Section 15 hereof, the SEC shall
disallow registration of the applying non-Philippine national if the existing joint venture
enterprise, particularly the Filipino partners therein, can reasonably prove they are
capable to make the investment needed for the domestic market activities to be
undertaken by the competing applicant. Upon effectivity of this Act, SEC shall effect
registration of any enterprise applying under this Act within fteen (15) days upon
submission of completed requirements. cdasia

SECTION 6. Foreign Investments in Export Enterprises. — Foreign investment in

export enterprises whose products and services do not fall within Lists A and B of the
Foreign Investment Negative List provided under Section 8 hereof is allowed up to one
hundred percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and
submit the reports that may be required to ensure continuing compliance of the export
enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may
be, of any export enterprise that fails to meet the export ratio requirement. The SEC or
BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to
the domestic market to not more than forty percent (40%) of its total production;
failure to comply with such SEC or BTRCP order, without justifiable reason, shall subject
the enterprise to cancellation of SEC or BTRCP registration, and/or the penalties
provided in Section 14 hereof.
SECTION 7. Foreign Investments in Domestic Market Enterprises. — Non-
Philippine nationals may own up to one hundred percent (100%) of domestic market
enterprises unless foreign ownership therein is prohibited or limited by existing law or
the Foreign Investment Negative List under Section 8 hereof.
A domestic market enterprise may change its status to export enterprise if over
a three (3) year period it consistently exports in each year thereof sixty per cent (60%)
or more of its output.
SECTION 8. List of Investment Areas Reserved to Philippine Nationals (Foreign
Investment Negative List). — The Foreign Investment Negative List shall have three (3)
component lists: A, B, and C:
a) List A shall enumerate the areas of activities reserved to Philippine
nationals by mandate of the Constitution and specific laws.
b) List B shall contain the areas of activities and enterprises pursuant to law:

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 1) Which are defense-related activities, requiring prior clearance and
authorization from Department of National Defense (DND) to
engage in such activity, such as the manufacture, repair,
storage and/or distribution of rearms, ammunition, lethal
weapons, military ordnance, explosives, pyrotechnics and
similar materials; unless such manufacturing or repair activity is
speci cally authorized, with a substantial export component, to
a non-Philippine national by the Secretary of National Defense;
or
2) Which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beerhouses, dance halls; sauna and
steambath houses and massage clinics.
Small and medium-sized domestic market enterprises with
paid-in equity capital less than the equivalent of ve hundred thousand
US dollars (US$500,000) are reserved to Philippine nationals, unless
they involve advanced technology as determined by the Department of
Science and Technology. Export enterprises which utilize raw
materials from depleting natural resources, with paid-in equity capital
of less than the equivalent of Five hundred thousand US dollars
(US$500,000) are likewise reserved to Philippine nationals.
Amendments to List B may be made upon recommendation of
the Secretary of National Defense, or the Secretary of Health, or the
Secretary of Education, Culture and Sports, indorsed by the NEDA, or
upon recommendation motu proprio of NEDA, approved by the
President, and promulgated by Presidential Proclamation. cdtai

c) List C shall contain the areas of investment in which existing enterprises

already serve adequately the needs of the economy and the consumer
and do not require further foreign investments, as determined by
NEDA applying the criteria provided in Section 9 of this Act, approved
by the President and promulgated in a Presidential Proclamation.
The Transitory Foreign Investment Negative List established in Sec. 15 hereof
shall be replaced at the end of the transitory period by the rst Regular Negative List to
the formulated and recommended by the NEDA, following the process and criteria
provided in Section 8 and 9 of this Act. The rst Regular Negative List shall be
published not later than sixty (60) days before the end of the transitory period provided
in said section, and shall become immediately effective at the end of the transitory
period. Subsequent Foreign Investment Negative Lists shall become effective fteen
(15) days after publication in two (2) newspapers of general circulation in the
Philippines: Provided, however, That each Foreign Investment Negative List shall be
prospective in operation and shall in no way affect foreign investments existing on the
date of its publication.
Amendments to List B and C after promulgation and publication of the rst
Regular Foreign Investment Negative List at the end of the transitory period shall not be
made more often than once every two (2) years.
SECTION 9. Determination of Areas of Investment for Inclusion in List C of the
Foreign Investment Negative List. — Upon petition by a Philippine national engage
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 therein, an area of investment may be recommended by NEDA for inclusion in List C of
the Foreign Investment Negative List upon determining that it complies with all the
following criteria:
a) The industry is controlled by rms owned at least sixty percent (60%) by
Filipinos;
b) Industry capacity is ample to meet domestic demand;
c) Sufficient competition exists within the industry;
d) Industry products comply with Philippine standards of health and safety
or, in the absence of such, with international standards, and are
reasonably competitive in quality with similar products in the same
price range imported into the country;
e) Quantitative restrictions are not applied on imports of directly competing
products;
f) The leading rms of the industry substantially comply with environmental
standards; and
g) The prices of industry products are reasonable.
The petition shall be subjected to a public hearing at which affected parties will
have the opportunity to show whether the petitioner industry adequately serves the
economy and the consumer, in general, and meets the above stated criteria in
particular. NEDA may delegate evaluation of the petition and conduct of the public
hearing to any government agency having cognizance of the petitioner industry. The
delegated agency shall make its evaluation report and recommendations to NEDA
which retains the right and sole responsibility to determine whether to recommend to
the President to promulgate the area of investment in List C of the Negative List. An
industry or area of investment included in List C of the Negative List by Presidential
Proclamation shall remain in the said List C for two (2) years, without prejudice to re-
inclusion upon new petition, and due process.
SECTION 10. Strategic Industries. — Within eighteen (18) months after the
effectivity of this Act, the NEDA Board shall formulate and publish a list of industries
strategic to the development of the economy. The list shall specify, as a matter of
policy and not as a legal requirement, the desired equity participation by Government
and/or private Filipino investors in each strategic industry. Said list of strategic
industries, as well as the corresponding desired equity participation of government
and/or private Filipino investors, may be amended by NEDA to re ect changes in
economic needs and policy directions of Government. The amended list of strategic
industries shall be published concurrently with publication of the Foreign Investment
Negative List.
The term "strategic industries" shall mean industries that are characterized by all
of the following:
a) Crucial to the accelerated industrialization of the country,
b) Require massive capital investments to achieve economies of scale for
efficient operations;
c) Require highly specialized or advanced technology which necessitates
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 technology transfer and proven production techniques in operations;
d) Characterized by strong backward and forward linkages with most
industries existing in the country, and
e) Generate substantial foreign exchange savings through import
substitution and collateral foreign exchange earnings through export
of part of the output that will result with the establishment, expansion
or development of the industry.
SECTION 11. Compliance with Environmental Standards. — All industrial
enterprises regardless of nationality of ownership shall comply with existing rules and
regulations to protect and conserve the environment and meet applicable
environmental standards.
SECTION 12. Consistent Government Action. — No agency, instrumentality or
political subdivision of the Government shall take any action on con ict with or which
will nullify the provisions of this Act, or any certificate or authority granted hereunder.
SECTION 13. Implementing Rules and Regulations. — NEDA, in consultation with
BOI, SEC and other government agencies concerned, shall issue the rules and
regulations to implement this Act within one hundred and twenty (120) days after its
effectivity. A copy of such rules and regulations shall be furnished the Congress of the
Republic of the Philippines.
SECTION 14. Administrative Sanctions. — A person who violates any provision of
this Act or of the terms and conditions of registration or of the rules and regulations
issued pursuant thereto, or aids or abets in any manner any violation shall be subject to
a fine not exceeding One hundred thousand pesos (P100,000).
If the offense is committed by a juridical entity, it shall be subject to a ne in an
amount not exceeding ½ of 1% of total paid-in capital but not more than Five million
pesos (P5,000,000). The president and/or o cials responsible therefor shall also be
subject to a fine not exceeding Two hundred thousand pesos (P200,000).
In addition to the foregoing, any person, rm or juridical entity involved shall be
subject to forfeiture of all benefits granted under this Act.
SEC shall have the power to impose administrative sanctions as provided herein
for any violation of this Act or its implementing rules and regulations.
SECTION 15. Transitory Provisions . — Prior to effectivity of the implementing
rules and regulations of this Act, the provisions of Book II of Executive Order 226 and
its implementing rules and regulations shall remain in force.
During the initial transitory period of thirty-six (36) months after issuance of the
Rules and Regulations to implement this Act, the Transitory Foreign Investment
Negative List shall consist of the following:
A. List A:
1. All areas of investment in which foreign ownership is limited by
mandate of Constitution and specific laws.
B. List B:
1. Manufacture, repair, storage and/or distribution of rearms,
ammunitions, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials required by law to be
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 licensed by and under the continuing regulation of the
Department of National Defense; unless such manufacturing or
repair activity is speci cally authorized with a substantial
export component, to a non-Philippine national by the Secretary
of National Defense;
2. Manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beerhouses, dance halls; sauna and
steam bathhouses, massage clinic and other like activities
regulated by law because of risks they may pose to public
health and morals;
3. Small and medium-size domestic market enterprises with paid-in
equity capital or less than the equivalent of US$500,000, unless
they involve advanced technology as determined by the
Department of Science and Technology, and
4. Export enterprises which utilize raw materials from depleting
natural resources, and with paid-in equity capital of less than
the equivalent US$500,000.
C. List C:
1. Import and wholesale activities not integrated with production or
manufacture of goods;
2. Services requiring a license or speci c authorization, and subject to
continuing regulations by national government agencies other
than BOI and SEC which at the time of effectivity of this Act are
restricted to Philippine nationals by existing administrative
regulations and practice of the regulatory agencies concerned:
Provided, That after effectivity of this Act, no other services
shall be additionally subjected to such restrictions on
nationality of ownership by the corresponding regulatory
agencies, and such restrictions once removed shall not be
reimposed; and
3. Enterprises owned in the majority by a foreign licensor and/or its
a liates for the assembly, processing or manufacture of
goods for the domestic market which are being produced by a
Philippine national as of the date of effectivity of this Act under
a technology, know-how and/or brand name license from such
licensor during the term of the license agreement: Provided,
That, the license is duly registered with the Central Bank and/or
the Technology Transfer Board and is operatively in force as of
the date of effectivity of this Act.
NEDA shall make the enumeration as appropriate of the areas of the investment
covered in this Transitory Foreign Investment Negative List and publish the Negative
List in full at the same time as, or prior to, the publication of the rules and regulations to
implement this Act.
The areas of investment contained in List C above shall be reserved to Philippine
nationals only during the transitory period. The inclusion of any of them in the regular
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 Negative List will require determination by NEDA after due public hearings that such
inclusion is warranted under the criteria set forth in Section 8 and 9 hereof.
SECTION 16. Repealing Clause. — Articles forty-four (44) to fty-six (56) of Book
II of Executive Order No. 226 are hereby repealed.
All other laws or parts of laws inconsistent with the provisions of this Act are
hereby repealed or modified accordingly.
SECTION 17. Separability. — If any part or section of this Act is declared
unconstitutional for any reason whatsoever, such declaration shall not in any way affect
the other parts or sections of this Act.
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SECTION 18. Effectivity. — This Act shall take effect fteen (15) days after
approval and publication in two (2) newspapers of general circulation in the Philippines.
Approved: June 13, 1991
Published in Malaya and Manila Times on June 15, 1991. Published in the O cial Gazette,
Vol. 87 No. 31 page 4418 on August 5, 1991.

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